An activist investor is urging department-store chain Kohl's Corp. to consider a sale of the company or a separation of its e-commerce business.
New York-based hedge fund Engine Capital LP wants the retailer to examine the two alternatives to improve its lagging stock price, according to a letter sent to Kohl's board on Sunday and viewed by The Wall Street Journal.
Engine owns a roughly 1% Kohl's stake.
The hedge fund argues that the company has underperformed both the S&P 500 and other retailers in recent years.
Kohl's shares closed on Friday at $48.45, roughly where they were 10 years ago, giving the Menomonee Falls, Wisconsin-based company a market value of around $7 billion.
Engine said in the letter that assuming online sales revenue of around $6.2 billion, Kohl's digital business alone would be worth $12.4 billion.
The hedge fund also said it believes there are private-equity firms that would pay at least $75 a share and that interactions with potential buyers suggest they could do so by monetizing Kohl's real estate.
Kohl's didn't immediately respond to a request for comment.
Kohl's has said it previously concluded that such sale-leasebacks wouldn't add value.
On its most recent earnings call chief executive Michelle Gass seemed to push back against the idea of separating its e-commerce unit by saying it works in tandem with the company's stores.
Earlier this year, Kohl's reinstated a dividend and boosted its share repurchases. It is also investing in its new partnership with Sephora and another e-commerce fulfillment center and updating more than half of its more than 1,000 stores.
Kohl's in November reported better-than-expected fiscal third-quarter earnings and raised its full-year guidance.
The idea of separating a department store's fast-growing e-commerce business from its retail stores has gained popularity following Saks Fifth Avenue's move earlier this year to spin off Saks.com.
While customers won't notice much of a difference, it gives investors the opportunity to buy into only the faster-growing segment, which could boost its value.
The Saks unit aims to go public in the first half of 2022 with a target valuation of roughly $6 billion -- three times what it was pegged at earlier this year -- the Journal has reported.
That prompted Macy's Inc. to hire consulting firm AlixPartners to evaluate whether it makes sense to spin off its e-commerce operations, a move that followed pressure from an activist investor.
Macy's shares soared 21% Nov. 18, the day the move was announced, though they have dropped along with the broader market since then.
Kohl's was targeted in early 2021 by a group of four activists who aimed to replace a majority of its board.
The stock rose in the following months, and the two sides eventually reached a truce that added three new directors to Kohl's board.
Under the agreement, the activists -- Macellum Advisors GP LLC, Ancora Holdings Inc. and Legion Partners Asset Management LLC, as well as 4010 Capital LLC -- could launch another proxy fight beginning Jan. 12.
Engine was founded by Arnaud Ajdler and has roughly $400 million under management. It held a Kohl's stake of less than 1% as of Sep. 30, the most recent date for which it was required to report holdings.
The hedge fund is best-known for calling on Ann Inc. to sell itself in 2015, which the Ann Taylor parent company did the following year.
